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Why second mortgages could make a comeback

Freddie Mac has a new revenue stream in its sights, thanks to the record $17 trillion of home equity sitting untapped in U.S. houses.

The big picture: An estimated $850 billion of that home equity is found in homes with first mortgages that were purchased by Freddie Mac — a so-called government-sponsored enterprise, or GSE. Freddie wants to start buying second mortgages written on those homes.

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Why it matters: If Freddie’s proposal is approved, a GSE-backed market for second mortgages could stimulate more lending and funnel more money to consumers. The catch, of course, is that any default would put those consumers’ homes at risk.

Where it stands: Freddie’s regulator, the Federal Housing Finance Agency, seems likely to approve the idea, noting that “second mortgages are typically offered at a lower interest rate than some financing alternatives such as consumer or personal loans.”

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Too many debt bubbles in the world, another bigger one is only going to make the inevitable pain worse.

h/t Mrbumboleh

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